American Eagle: Smartphones and Desperate Times

Last week's retail same-store sales data revealed the desperate promotions retailers rolled out in June to lure in shoppers. If American Eagle Outfitters' (Nasdaq: AEO  ) new bid to fill its fitting rooms is any indication, that trend could continue into back-to-school season.

American Eagle will give shoppers free smartphones simply for trying on its jeans (which cost about $30 to $40 a pop) between July 21 and Aug. 3. About 40 phones will be available through the promotion through carriers AT&T (NYSE: T  ) , Sprint Nextel (NYSE: S  ) , Verizon (NYSE: VZ  ) , and T-Mobile. (Sorry, kids -- Apple's iPhones aren't included in this promotion.) Shoppers get a $25 American Eagle gift card thrown in, too.

Those who try on the jeans and decide to take American Eagle up on its offer (for the free phone, not the jeans), will find the goodies aren't all free. Shoppers are required to sign up for a two-year phone contract. (Smart move, carriers. That alone probably makes the deal a win for you.)

Maybe this move is American Eagle's attempt to get ahead of rivals like Aeropostale (NYSE: ARO  ) and Abercrombie & Fitch (NYSE: ANF  ) , getting the first crack at peddling back-to-school jeans to denim-starved students. But I don't quite buy it.

I'm just amazed that the purchase of a pair of jeans isn't even necessary to get the free phone deal. I wonder whether this means that other retailers are planning even more crazy, attention-grabbing, and horrifically margin-busting promotional maneuvers over the next few months. Fools, now may be the time to pick through your portfolio and weed out weaker retail stocks.

Crazy promotional activity isn't just your opportunity to score great deals at the mall. It'll also give you an idea of which stocks may have a harder time generating sales and profits in the coming months. What's good for your wallet isn't always good for companies' profits.

Have you noticed any wild promotions? Share your mall-based stock research in the comment box below.

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Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.


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Comments from our Foolish Readers

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  • Report this Comment On July 12, 2010, at 10:10 PM, aeosfool wrote:

    If you knew a little history about American Eagle and used it instead of just making a judgment based on something that looked funny or overaggressive to you, you would not just suggest selling the stock and others like it based on this little promotion.

    Every year at this time, American Eagle runs a promotion to get customers to try on jeans. Just like Apple gives away a free ipod this time of year to those who buy a mac. I don't know how much this promo is costing American Eagle, but my guess would be very little as I'm sure the carriers are picking up most if not all the costs of the phones and are likely paying AE for every customer that signs a 2 year contract...that's why AE is throwing in a $25 Gift Card too.

    AE knows they have some of the best and best priced jeans on the market today and they do this promo every year to get people to try them on, as they know when they do, they are likely to buy.

    AE stock is nearing a historical low valuation and it could go lower, but if history repeats itself as it has with this stock countless times since going public, it will rebound to a higher high...but probably not overnight.

  • Report this Comment On July 13, 2010, at 1:41 PM, tgauchat wrote:

    Ditto on your comments @aeosfool.

    When will people finally realize that PHONE are FREE. It's the contract that'll get you every time.

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